How Your Credit Score Impacts Your Interest Rate
The most important factor in determining what interest rate you will qualify for with your mortgage is your credit score or also know as FICO score. However, most people are not only unfamiliar with their FICO scores they also aren’t aware of what is on their credit reports.
When qualifying for a mortgage the underwriter will pull your score from all 3 bureaus Experian, Equifax, and Trans Union. They will use the middle score to determine the interest rate. Most lenders today require a minimum of 580 score to obtain a mortgage. The Federal Trade Commission has found that 1 in every 5 consumers have a mistake on at least one of their reports. It is incredibly important to make sure that everything being reported on your credit is accurate since your scores will dictate how much you pay for everything from a mortgage, car loan, to credit cards.
There are websites such as www.freecreditreport.com that will allow you to obtain a copy of your credit report so you can constantly monitor the activity on your credit report. When disputing anything that is inaccurately showing on your report it is important to get all activity and correspondence in writing and properly documented. Many lenders will ask for this documentation when items are showing on a credit report that are incorrect.
Once you have gone through your credit report and everything is correct and in order, there are some simple steps you can go through to improve your scores. First step is to keep your balances low. Credit bureaus look at your utilization rate to calculate your scores. You want to keep all your balances at 40% of the credit limit or less.
Pay all your bills on time. Credit bureaus will track all your late payments and these will lower your scores. If you have accidently paid a bill late make sure you call that company up and explain the situation. Ask for an extended grace period and for them not to report it late. If you are in good standing 9 out of 10 times they will do this.
Do not cancel old credit cards you no longer use. The longer you have an open line of credit in good standing the more this will improve your credit scores. So even if you have old credit cards you never use keep them open.
Once you are in good standing you can get pre-qualified for a mortgage and begin your home search. There are many active listings in the Greenville real estate market as well as other areas in Pitt County NC.
Kendra McCormick
Mortgage Loan Officer
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